[Newsmaker] Ruling camp bigwigs clash over COVID-19 relief funds

Tensions flared between South Korea’s fiscal chief and the ruling party leader on Wednesday, as they publicly disagreed over the timing of an additional release of COVID-19 relief funds and who should benefit.

Prime Minister and Finance Minister Hong Nam-ki struck a defiant tone against the idea pitched by the ruling Democratic Party Chairman and a leading potential contender for 2022 presidential race Lee Nak-yon to begin discussions on a fourth round of emergency handouts to all households as well as additional assistance for the self-employed and small businesses hit hard by extended social distancing rules.

Alarmed by Lee’s two-track relief fund idea, which was made public during his parliamentary speech Tuesday, Hong immediately voiced his objection.

“Even if additional relief funds are inevitable, it is hard for the government to accept calls to provide support to all people as well as targeted assistance,” Hong said in a Facebook posting.

This is the latest tussle between the ruling party and Hong, the country’s second-longest serving finance minister who took office in Dec. 2018, over COVID-19 relief programs and other regulation issues, once prompted him to offer resignation last year.

So far, the government has distributed more than 31 trillion won ($27.8 billion) to households, as well as small merchants and business owners, through three rounds of a COVID-19 relief funds.

To finance the relief programs, the country allocated four supplementary budgets in a single fiscal year, marking the first time in 59 years.

Political bigwigs from the ruling Democratic Party, including the DP chief, have been calling on the finance ministry to draw up a new and sufficient supplementary budget for the fourth batch of relief handouts as early as February. Some critics see them dangling populist policies ahead of the Seoul and Busan mayoral by-elections in April.

As distribution of the third round of virus funds is currently underway, discussions on a fresh program could wait another month, Hong said.

“It seems to be early to draw up an extra budget in February. Talks could begin in March after monitoring the virus containment situation and economic performance,” he said.

On Wednesday, Lee reiterate that talks should begin in earnest and it is “time to expand the role of fiscal policy,” echoing the IMF‘s assessment released last week that the country also has fiscal room for increasing targeted support to people and businesses hit hard by the virus outbreak.

The minister’s cautious approach on the fresh relief program stems from concerns over a fiscal shortfall and a rise in government debt prompted by keeping up expansionary fiscal policy to cushion the economic fallout from the coronavirus pandemic.

The country’s debt is expected to reach 956 trillion won in 2021, up 150.8 trillion won from a year earlier. The country’s debt-to-gross domestic product ratio, a gauge of a nation’s financial health, will reach 47.3 percent this year, from just below 40 percent before the pandemic, according to the Finance Ministry.

“A state fiscal situation cannot be determined by simply comparing with GDP. It is a complex issue linked to the speed of debt accumulation, budget balance, national credit, and tax burden,” Hong said.

By Park Han-na (hnpark@heraldcorp.com)